<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
--------------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from -- to --
Commission file number 0-12638
F&M BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1316473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Thomas Johnson Drive
Frederick, Maryland 21702
(Address of principal executive offices) (zip code)
301-694-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock $5 par value, 3,953,054 shares outstanding as of May 8,
1995.
Exhibit index located on page 17.
<PAGE> 2
2
F&M BANCORP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C> <C>
Consolidated Balance Sheets (Unaudited),
March 31, 1995 and 1994 and December 31, 1994 3
Consolidated Statements of Income (Unaudited),
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1995 and 1994 5
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited), Three Months Ended March 31, 1995
and Twelve Months Ended December 31, 1994 6
Notes to Consolidated Financial Statements (Unaudited) 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II OTHER INFORMATION
-----------------
Item 4. Submission of Matters to Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
<PAGE> 3
3
CONSOLIDATED BALANCE SHEETS (Unaudited)
F&M Bancorp and Subsidiary
<TABLE>
<CAPTION>
(Dollars in thousands, March 31 March 31 December 31
except per share amounts) 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 19,995 $ 25,013 $22,132
Federal funds sold -- 9,000 2,100
-------- -------- -------
Total cash and cash equivalents 19,995 34,013 24,232
-------- -------- -------
Loans held for sale 193 2,725 149
-------- -------- -------
Investment securities
Held-to-maturity, fair value
$84,186, $31,702, and $84,405,
respectively 84,125 32,172 86,291
Available-for-sale, at fair value 74,929 146,946 77,649
-------- -------- -------
Total investment securities 159,054 179,118 163,940
-------- -------- -------
Loans, net of unearned income 468,189 402,305 459,272
Less: Allowance for credit losses (5,673) (5,488) (5,522)
-------- -------- -------
Net loans 462,516 396,817 453,750
-------- -------- --------
Bank premises and equipment, net 13,883 12,021 12,927
Other real estate owned 3,311 3,244 3,559
Interest receivable 4,443 3,943 4,573
Intangible assets 4,384 616 4,501
Other assets 7,549 6,308 7,625
-------- -------- -------
Total assets $675,328 $638,805 $675,256
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 82,753 $ 76,341 $86,341
Interest-bearing 482,503 463,215 489,955
-------- -------- -------
Total deposits 565,256 539,556 576,296
Federal funds purchased and
securities sold under agreements
to repurchase 35,362 33,984 31,959
Other short-term borrowings 6,922 1,869 1,933
Accrued interest and other
liabilities 6,445 5,110 5,819
-------- -------- -------
Total liabilities 613,985 580,519 616,007
-------- -------- -------
Shareholders' equity
Common stock, par value $5 per
share; authorized 10,000,000
shares; issued and outstanding
3,952,645 shares, 3,747,914
shares, and 3,946,984 shares,
respectively 19,763 18,740 19,735
Surplus 19,756 15,841 19,614
Retained earnings 23,890 23,636 22,873
Net unrealized gain (loss) on
securities available for sale (2,066) 69 (2,973)
-------- -------- ------
Total shareholders' equity 61,343 58,286 59,249
-------- -------- -------
Total liabilities and shareholders'
equity $675,328 $638,805 $675,256
======== ======== ========
</TABLE>
<PAGE> 4
4
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
Quarter ended
(Dollars in thousands, March 31
except per share amounts) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Interest and fees on loans $10,342 $ 8,251
Interest and dividends on investment
securities
Taxable 1,342 1,382
Tax-exempt 892 893
Interest on federal funds sold 3 91
------- -------
Total interest income 12,579 10,617
------- -------
Interest Expense
Interest on deposits 4,689 3,786
Interest on federal funds purchased
and securities sold under
agreements to repurchase 602 247
Interest on other short-term
borrowings 33 12
------- -------
Total interest expense 5,324 4,045
------- -------
Net interest income 7,255 6,572
Provision for credit losses 300 225
------- -------
Net interest income after provision
for credit losses 6,955 6,347
------- -------
Noninterest Income
Trust income 341 253
Service charges on deposit accounts 674 454
Gains on sales of property 11 5
Other operating income 674 725
------- -------
Total noninterest income 1,700 1,437
------- -------
Noninterest Expenses
Salaries and employee benefits 3,052 2,807
Occupancy and equipment expense 669 625
Other operating expense 2,424 1,881
------- -------
Total noninterest expenses 6,145 5,313
------- -------
Income before provision for
income taxes 2,510 2,471
Provision for income taxes 625 664
------- -------
Net Income $ 1,885 $ 1,807
======= =======
Earnings per Common Share
Based on weighted average shares
outstanding of 3,948,892 for
1995, 3,933,356 for 1994 $ .48 $ .46
======= =======
Dividends per Share $ .20 $ .19
======= =======
</TABLE>
<PAGE> 5
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
March 31 March 31
(Dollars in thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,885 $ 1,807
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 300 225
Provision for other real estate owned 168 --
Depreciation and amortization 250 241
Amortization of intangibles 117 17
Net premium amortization on investment securities 38 160
Decrease in interest receivable 130 117
Increase (decrease) in interest payable 114 (35)
Amortization (accretion) of net loan origination
costs (fees) 10 (106)
Gain on sales of equipment (10) (4)
Gain on sales of other real estate owned (1) --
Decrease (increase) in loans held for sale (44) 5,971
Increase in other assets (489) (581)
Increase in other liabilities 512 661
------- -------
Net cash provided by operating activities 2,980 8,473
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities-held to maturity -- (4,749)
Purchases of investment securities-available for sale (2,238) (19,960)
Proceeds from calls of securities-held to maturity 255 --
Proceeds from maturing securities-available for sale 6,658 12,590
Proceeds from maturing securities-held to maturity 1,645 --
Net increase in loans (9,076) (6,059)
Purchases of premises and equipment (1,206) (409)
Proceeds from sales of equipment 10 5
Proceeds from sales of other real estate owned 111 --
Other investing activities (30) (147)
------- -------
Net cash used in investing activities (3,871) (18,729)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing
deposits, interest-bearing checking, savings
and money market accounts (16,485) 20,708
Net increase (decrease) in certificates of deposit 5,445 (3,306)
Net increase in federal funds purchased
and securities sold under agreements to repurchase 3,403 3,607
Net increase (decrease) in other short-term borrowings 4,989 (145)
Cash dividends paid (786) (750)
Dividend reinvestment plan (5) (5)
Proceeds from issuance of common stock 209 47
Repurchase of common stock (116) (10)
------- -------
Net cash provided by (used in) financing activities (3,346) 20,146
------- -------
Net increase (decrease) in cash and cash equivalents (4,237) 9,890
Cash and cash equivalents at beginning of period 24,232 24,123
------- -------
Cash and cash equivalents at end of period $19,995 $34,013
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 5,210 $ 4,080
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value adjustment for securities available
for sale, net of deferred income taxes payable
(benefits) 853 (1,442)
</TABLE>
<PAGE> 6
6
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
F&M BANCORP and Subsidiary
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
on Securities
(Dollars in thousands Common Retained Available
except per share amounts) Stock Surplus Earnings for Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $18,728 $15,811 $22,589 $ 1,511 $58,639
Net income -- -- 7,956 -- 7,956
Dividend reinvestment plan -- -- (46) -- (46)
Stock Dividend (5%) 933 3,473 (4,406) -- --
Cash dividends paid
($.78 per share) -- -- (3,079) -- (3,079)
Stock options exercised
(22,521 shares) 113 368 -- -- 481
Stock repurchased
(7,688 shares) (39) (38) (141) -- (218)
Fair value adjustment for
securities available
for sale, net -- -- -- (4,484) (4,484)
------- ------- ------- ------- -------
Balance at December 31, 1994 19,735 19,614 22,873 (2,973) 59,249
Net income -- -- 1,885 -- 1,885
Dividend reinvestment plan -- -- (5) -- (5)
Cash dividends paid
($.20 per share) -- -- (786) -- (786)
Stock options exercised
(9,578 shares) 48 161 -- -- 209
Stock repurchased
(3,917 shares) (20) (19) (77) -- (116)
Fair value adjustment for
securities available
for sale, net -- -- -- 907 907
------- ------- ------- ------- -------
Balance at March 31, 1995 $19,763 $19,756 $23,890 $(2,066) $61,343
======= ======= ======= ======= =======
</TABLE>
<PAGE> 7
7
Notes to Consolidated Financial Statements
(Unaudited)
Summary of Significant Accounting Policies
The foregoing financial statements are unaudited;
however, in the opinion of management, all
adjustments (comprising only normal recurring
accruals) necessary for a fair presentation of the
financial statements have been included. A summary of
F&M Bancorp's significant accounting policies is set
forth in Note 1 to the consolidated financial
statements in it's Annual Report on Form 10-K for
1994.
Certain reclassifications to prior year balances have
been made in the accompanying consolidated financial
statements to make disclosures consistent with those
of the current year.
Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
March 31, 1995
------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 46,823 $ 43 $ 882 $ 45,984
Obligations of states
and political sub-
divisions 2,232 21 4 2,249
Mortgage-backed
securities 25,313 15 1,113 24,215
------------------------------------------------------------------------------------------------
Total-debt securities 74,368 79 1,999 72,448
Equity securities 2,481 -- -- 2,481
------------------------------------------------------------------------------------------------
Total available-for-sale: 76,849 79 1,999 74,929
------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 7,101 162 -- 7,263
Obligations of states
and political
subdivisions 65,710 533 897 65,346
Mortgage-backed
securities 11,314 263 -- 11,577
------------------------------------------------------------------------------------------------
Total held-
to-maturity 84,125 958 897 84,186
------------------------------------------------------------------------------------------------
Total investment
securities $160,974 $1,037 $2,896 $159,115
================================================================================================
</TABLE>
<PAGE> 8
8
Notes to Consolidated Financial Statements (continued)
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
March 31, 1994
-----------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 62,727 $ 101 $ 624 $ 62,204
Obligations of states
and political sub-
divisions 37,728 1,334 44 39,018
Mortgage-backed
securities 44,225 145 799 43,571
-----------------------------------------------------------------------------------------------
Total-debt securities 144,680 1,580 1,467 144,793
Equity securities 2,153 -- -- 2,153
-----------------------------------------------------------------------------------------------
Total available-for-sale: 146,833 1,580 1,467 146,946
-----------------------------------------------------------------------------------------------
Held-to-maturity:
Obligations of states
and political subdivisions 32,172 171 641 31,702
-----------------------------------------------------------------------------------------------
Total investment
securities $179,005 $1,751 $2,108 $178,648
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
December 31, 1994
-----------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 50,804 $ -- $1,573 $ 49,231
Obligations of states
and political sub-
divisions 2,234 11 20 2,225
Mortgage-backed
securities 25,696 1 1,730 23,967
-----------------------------------------------------------------------------------------------
Total-debt securities 78,734 12 3,323 75,423
Equity securities 2,226 -- -- 2,226
-----------------------------------------------------------------------------------------------
Total available-for-sale: 80,960 12 3,323 77,649
-----------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 7,045 -- -- 7,045
Obligations of states
and political
subdivisions 67,734 18 1,904 65,848
Mortgage-backed
securities 11,512 -- -- 11,512
-----------------------------------------------------------------------------------------------
Total held-
to-maturity 86,291 18 1,904 84,405
-----------------------------------------------------------------------------------------------
Total investment
securities $167,251 $ 30 $5,227 $162,054
===============================================================================================
</TABLE>
<PAGE> 9
9
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Effective December 31, 1993, Bancorp adopted Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires the use of fair value accounting for certain
investment categories. Applying the new accounting and reporting standards
prescribed in the Statement, Bancorp classifies its investments in debt and
equity securities into two categories: held-to-maturity and available-for-sale.
Securities classified as held-to-maturity are those debt securities that
Bancorp has both the positive intent and ability to hold to maturity. These
securities are carried at cost, adjusted for amortization of premiums and
accretion of discounts, which are recognized as adjustments to interest income
using the interest method.
Securities classified as available-for-sale are equity securities with readily
determinable fair values and those debt securities that Bancorp intends to hold
for an indefinite period of time but not necessarily to maturity. These
securities may be sold as part of its asset/liability management strategy, or
in response to significant movements in interest rates, liquidity needs,
regulatory capital considerations, and other similar factors. These securities
are carried at fair value, with any unrealized gains and losses reported as a
separate component of shareholders' equity, net of the related deferred tax
effect.
The fair value of investments in the available-for-sale category was
$74,929,000 at March 31, 1995, which was $1,920,000 less than the amortized
cost of these securities. The fair value of investments in the
available-for-sale category at December 31, 1994 was $77,649,000 which was
$3,311,000 less than the amortized cost of these securities.
Regardless of the classification, dividend and interest income, including
amortization of premiums and accretion of discounts arising at acquisition, is
included in interest income in the consolidated statements of income. Realized
gains and losses, if any, determined based on the adjusted cost of the specific
securities sold, are reported as a separate line item in noninterest income in
the consolidated statements of income.
<PAGE> 10
10
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The amortized cost and estimated fair values of investments at March 31, 1995
by contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
(in thousands) Cost Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Within 1 year $ 24,530 $ 24,341
After 1 but within 5 years 23,525 22,992
After 5 years but within 10 years 1,000 900
Mortgage-backed securities 25,313 24,215
Equity securities 2,481 2,481
- -------------------------------------------------------------------------------------------------------------------------
Total available-for-sale 76,849 74,929
- -------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Within 1 year 6,928 6,937
After 1 but within 5 years 34,707 35,089
After 5 years but within 10 years 31,176 30,583
Mortgage-backed securities 11,314 11,577
- -------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity 84,125 84,186
- -------------------------------------------------------------------------------------------------------------------------
Total investment securities $160,974 $159,115
=========================================================================================================================
</TABLE>
The amortized cost of investment securities pledged to secure public deposits,
securities sold under repurchase agreements, and for other purposes as required
and permitted by law, totaled $73,201,000 at March 31, 1995.
Proceeds from calls of debt securities available for sale for the period ended
March 31, 1995 were $255,000. No gains or losses were realized on those calls.
<PAGE> 11
11
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Loans
Loans, net of unearned income, consist of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
- -------------------------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate Loans
Construction and land development $ 20,180 $ 21,107 $ 19,454
Secured by farmland 6,033 5,344 6,093
Secured by 1 to 4 family
residential properties 105,216 99,068 103,750
Other 80,610 72,014 81,297
Loans to farmers 1,662 1,677 1,815
Commercial and industrial loans 46,050 37,842 44,371
Loans to individuals for household,
family, and other personal
expenditures 192,669 149,259 185,004
Credit card loans 10,947 10,689 12,199
All other loans and lease financing
receivables 4,822 5,305 5,289
- -------------------------------------------------------------------------------------------------------------------------
Totals $468,189 $402,305 $459,272
=========================================================================================================================
</TABLE>
Loans to states, political subdivisions, and industrial revenue bonds are
included in all other loans in the schedule above and in total loans in the
statement of condition.
The allowance for credit losses is maintained at a level which, in management's
opinion, is considered adequate to provide for possible loan losses on loans
currently held in the loan portfolio.
Bank Premises and Equipment
Investments in bank premises and equipment are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises and land $15,559 $13,602 $14,673
Furniture and equipment 9,271 8,496 8,978
Leasehold improvements 967 967 967
- ---------------------------------------------------------------------------------------------------------------------------
25,797 23,065 24,618
Less accumulated depreciation
and amortization (11,914) (11,044) (11,691)
- ---------------------------------------------------------------------------------------------------------------------------
Net premises and equipment $13,883 $12,021 $12,927
===========================================================================================================================
</TABLE>
<PAGE> 12
12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
F&M Bancorp's net income for the first quarter of 1995 was $1,885,000
or 48 cents per share compared with $1,807,000 or 46 cents per share for the
same period last year. The 4.3 percent increase in earnings was attributed to
increases in interest and fee income on loans, trust and deposit fee income and
income tax planning strategies.
Net Interest Income (Taxable-Equivalent Basis)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold $ 183 6.65% $11,324 3.26%
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities(1)
Taxable 96,613 5.56 107,467 5.14
Tax-exempt 68,510 7.89 67,087 8.07
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 165,123 6.53 174,554 6.27
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned interest 464,681 9.07 399,557 8.42
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 629,987 8.42 585,435 7.70
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
Interest-bearing deposits
Checking 68,318 2.27 62,514 2.41
Savings 105,152 2.87 105,474 2.75
Money Market 90,788 3.42 87,738 2.90
Certificates of deposit
under $100,000 193,922 5.11 174,502 4.25
Certificates of deposit
$100,000 and over 27,725 5.16 25,211 3.89
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 485,905 3.91 455,439 3.37
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings
Federal funds purchased and securities
sold under agreements to repurchase 42,102 5.80 31,854 3.14
Other 2,359 5.67 1,735 2.80
- -----------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 44,461 5.79 33,589 3.13
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 530,366 4.07 489,028 3.35
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-free funds 99,621 -- 96,407 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total funding 629,987 3.42 585,435 2.80
===================================================================================================================================
Net interest earnings* $ 7,763 $ 7,072
===================================================================================================================================
Net interest spread 4.35% 4.35%
===================================================================================================================================
Net yield on earning assets 5.00% 4.90%
===================================================================================================================================
</TABLE>
*Includes the following taxable-equivalent adjustments: First Quarter - $508
thousand in 1995 and $500 thousand in 1994. Each represents a pro forma amount
of net interest income (above the amount reported in the income statement) that
adjusts the yield on tax-exempt assets to a basis equivalent to that of taxable
assets.
(1) Excludes fair value adjustments.
<PAGE> 13
13
For the first quarter of 1995, net interest income on a taxable-equivalent
basis increased $691,000 or 9.8 percent compared with the same period last
year. The net interest spread was maintained at 4.35 percent while the net
interest margin (net interest income as a percent of earning assets) increased
10 basis points compared with the same period last year.
The average rate earned on earning assets was 72 basis points higher than last
year-to-date. Average earning assets increased by 7.6 percent. Continuing a
trend established in the last half of 1994, loan demand remained strong.
Proceeds from maturities of investment securities were needed to fund this
demand. Average loans increased 16.3 percent compared with the first quarter
of 1994 while the average investment in federal funds sold and investment
securities declined 11.1 percent during the same period. The change in the
earning asset mix to higher yielding assets accompanied by rising market
interest rates acted to improve the earning asset yield. Continued strong loan
demand is expected through the remainder of the year.
The average rate paid on interest-bearing liabilities was 72 basis points
higher than last year-to-date. Reversing a trend of the last several years,
customers are now shifting their deposits to higher-yielding certificates of
deposit from savings and checking accounts. Intense competition between
financial institutions for core deposit retention and acquisition has also
acted to drive liability rates higher. Average deposit balances increased 7.0
percent when compared with the same period last year. The acquisition of three
branch offices of the former Standard Federal Savings Association completed in
the last quarter of 1994 contributed significantly to this increase. An
increased reliance on short-term funding sources also acted to drive the
average rate paid on interest bearing liabilities upward. This reliance on
short-term funding sources should be reduced in the second quarter when
additional deposits are acquired from the acquisition of two branches from
First Union National Bank of Maryland. In addition, the Bank plans to open two
new branches in the near future and will solidify its market share with the
addition of two offices through its pending merger with the Bank of Brunswick.
Management continually monitors Bancorp's balance sheet to insulate net
interest income from significant swings caused by interest rate volatility
using the concept of natural hedges. If market rates were to continue to
increase as predicted, corresponding changes in asset mix and funding sources
and rates would be considered to avoid a negative impact on net interest
income.
Bancorp attempts to measure the interest rate sensitivity of its assets and
liabilities on the basis of when they will reprice as opposed to when they can
reprice. Since it is difficult to predict the movement of interest rates,
management's objective is to maintain a relatively balanced sensitivity
position, while not
<PAGE> 14
14
foregoing any opportunity to benefit from current rate conditions. As
indicated in the table below, Bancorp had a net liability sensitive position
of $5,521,000 within the one year time frame. This position would indicate
that Bancorp has the potential for decreased earnings if market interest rates
continue to rise in the next twelve months. Due to inherent limitations in
this traditional gap analysis technique for measuring interest rate
sensitivity, management also utilizes simulation modeling to analyze the
volatility of net interest income as a result of changes in interest rates.
The effects of changes in interest rates on the market value of assets,
liabilities, and off-balance-sheet contracts is also measured. At March 31,
1995, the changes in net interest income and/or market value calculated under
these alternative methods were within established parameters.
INTEREST RATE SENSITIVITY ANALYSIS AT MARCH 31, 1995 (1)
<TABLE>
<CAPTION>
Total
Total Greater quarter
1-30 31-90 91-180 181-365 within than end
(In thousands) days days days days 1 year 1 year balance
- -------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
Assets:
Federal funds
sold $ -- $ -- $ -- $ -- $ -- $ -- $ --
Investment
securities (2) 1,245 7,488 17,496 32,262 58,491 98,082 156,573
Loans, net 91,716 22,264 28,704 64,392 207,076 253,737 460,813
-------- -------- -------- -------- -------- -------- --------
Total $ 92,961 $ 29,752 $ 46,200 $ 96,654 $265,567 $351,819 $617,386
======== ======== ======== ======== ======== ======== ========
Interest-bearing
Liabilities:
Deposits $ 44,155 $ 44,783 $ 60,557 $ 79,310 $228,805 $253,542 $482,347
Short-term
borrowings 36,283 6,000 -- -- 42,283 -- 42,283
-------- -------- -------- -------- -------- -------- --------
Total $ 80,438 $ 50,783 $ 60,557 $ 79,310 $271,088 $253,542 $524,630
======== ======== ======== ======== ======== ======== ========
Interest
Sensitivity Gap:
Period $ 12,523 $(21,031) $(14,357) $ 17,344 $ (5,521) $ 98,277 $ 92,756
Cumulative 12,523 (8,508) (22,865) (5,521) (5,521) 92,756 92,756
</TABLE>
(1) Excludes nonaccrual loans and other nonrate-sensitive assets.
(2) Reflects fair value adjustments for securities available for sale.
The allowance for credit losses was $5,673,000 or 1.2 percent of loans
outstanding as of March 31, 1995 compared with $5,522,000 or 1.2 percent of
loans outstanding as of December 31, 1994 and $5,488,000 or 1.4 percent of
loans outstanding as of March 31, 1994. The provision for credit losses for
the first quarter of 1995 was $300,000 compared with $225,000 for the same
quarter last year. Net charge-offs for the first quarter decreased $48,000
when compared with the first quarter of last year. Total nonaccrual loans at
the end of the first quarter were $1,867,000 compared with $2,086,000 at
December 31, 1994 and $1,558,000 at March 31, 1994. Loans past due 90 days or
more and still accruing were $298,000 at
<PAGE> 15
15
March 31, 1995 compared with $213,000 at December 31, 1994 and $1,092,000 at
March 31, 1994. Although there is no direct correlation between nonperforming
loans and ultimate loan losses, an analysis of the nonperforming loans may
provide some indication of the quality of the loan portfolio. Management
believes that the amounts of its nonperforming loans are modest in relation to
the size of the loan portfolio.
Based upon management's analysis and review of the loan portfolio, past loss
experience, and current economic conditions, the amount in the allowance for
credit losses at March 31, 1995 is considered adequate.
Noninterest income increased $263,000 or 18.3 percent compared with the first
quarter of last year. Contributing significantly to the increase was income
from deposit service which increased $220,000 or 48.5 percent. Trust fees also
increased $88,000 or 34.8 percent. The increases result, in part, from
strategies undertaken in 1994 to increase noninterest income coupled with
higher deposit levels. Management continues to be actively committed to
increasing this source of revenue.
Noninterest expenses increased $832,000 or 15.7 percent compared with the same
period last year. The increase was attributable primarily to costs associated
with branch acquisition activities and provisions made in connection with other
real estate owned.
The provision for income taxes declined $39,000 for the quarter, The decline
was attributable to the realization of tax benefits from tax planning
strategies implemented in the second quarter of 1994.
Shareholder's equity totaled $61,343,000 at March 31, 1995, an increase of 3.5
percent compared with the 1994 year end level of $59,249,000 and an increase of
5.2 percent from the year earlier level of $58,286,000. The fair value of the
available for sale portfolio has increased $907,000 (net of deferred taxes)
since year end. Our capital levels are considered sufficient to absorb
anticipated future price volatility in the available-for-sale portfolio. Both
our risk-based capital and our leverage capital ratios exceed regulatory
guidelines as of March 31, 1995, as follows:
<TABLE>
<CAPTION>
Risk-based Capital
----------------------
Tier 1 Total Leverage
Capital Capital Ratio
------- ------- --------
<S> <C> <C> <C>
Actual 11.88% 13.01% 8.85%
Minimum 4.00% 8.00% 3.00%
------- ------- --------
Excess 7.88% 5.01% 5.85%
======= ======= ========
</TABLE>
<PAGE> 16
16
Fair value adjustments to shareholders' equity for changes in the fair value of
securities classified as available-for-sale are excluded from the calculation
of these capital ratios in accordance with regulatory guidelines. Risk-based
capital and leverage ratios will continue to exceed regulatory guidelines after
the First Union and Bank of Brunswick acquisitions are finalized.
<PAGE> 17
17
PART II - Other Information
Item 4 Submission of Matters to Vote of Security Holders
(a) The annual meeting of stockholders of F&M Bancorp
was held April 11, 1995.
(b) Proxies for the meeting were solicited pursuant
to Regulation 14A under the Securities and
Exchange Act of 1934. There was no solicitation
in opposition to management's nominees as listed
in the proxy statement, and all such nominees
were re-elected.
(c) Election of Directors
<TABLE>
<CAPTION>
Name For Withheld Abstain
---- --------- -------- -------
<S> <C> <C> <C>
R. Carl Benna 2,980,912 -- 2,793
John D. Brunk 2,981,863 -- 1,842
Beverly B. Byron 2,917,297 -- 66,408
Faye E. Cannon 2,981,863 -- 1,842
Martha E. Church 2,957,269 -- 26,436
Albert H. Cohen 2,979,654 -- 4,051
George B. Delaplaine, Jr. 2,981,475 -- 2,230
Maurice A. Gladhill 2,978,684 -- 5,021
Charles W. Hoff, III 2,981,863 -- 1,842
Charles A. Nicodemus 2,980,673 -- 3,032
H. Deets Warfield, Jr. 2,956,692 -- 27,013
John C. Warfield 2,977,909 -- 5,796
Thomas R. Winkler 2,976,021 -- 7,684
</TABLE>
<TABLE>
<CAPTION>
Adoption of 1995 Stock Option Plan
<S> <C>
For 2,698,873
Withheld 111,692
Against 168,000
</TABLE>
<PAGE> 18
18
Item 6 Exhibits and Reports on Form 8-K Page
(a) Exhibits
11 Statement Re: Computation of per share earnings.
(b) No reports on Form 8-K were filed by the Corporation
during the quarter ended March 31, 1995.
<PAGE> 19
19
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F&M BANCORP
-----------
(Registrant)
May 10, 1995 /s/Kenneth M. Sabanosh
- ------------ --------------------------------
DATE KENNETH M. SABANOSH
VICE PRESIDENT AND TREASURER
<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ending
March 31,
1995 1994
-------------------
<S> <C> <C>
Earnings Per share:
Primary $ .47 $ .45
Fully
diluted $ .47 $ .45
</TABLE>
Primary and fully diluted earnings per share are calculated using the following
number of adjusted weighted average shares outstanding:
<TABLE>
<CAPTION>
Quarter Ending
March 31,
1995 1994
----------------------
<S> <C> <C>
Primary 3,995,856 3,972,796
Fully
diluted 3,995,864 3,974,001
</TABLE>
The weighted average number of shares outstanding is adjusted to recognize the
dilutive effect, if any, of outstanding employee stock options on both a
primary and fully diluted basis.
The calculations of earnings per share above are based on the weighted average
number of shares outstanding including all common stock and common stock
equivalents in conformity with the instructions for Item 601 of Regulation S-K.
The calculation of earnings per share for financial reporting purposes is based
on the weighted average number of shares outstanding of 3,948,892 and 3,933,356
at March 31, 1995 and March 31, 1994, respectively, without giving effect to
the common stock equivalents resulting from the assumed exercise of stock
options, which do not dilute earnings per share by more than 3 percent, in
conformity with generally accepted accounting principles.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 19,995
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,929
<INVESTMENTS-CARRYING> 84,125
<INVESTMENTS-MARKET> 84,186
<LOANS> 468,189
<ALLOWANCE> 5,673
<TOTAL-ASSETS> 675,328
<DEPOSITS> 565,256
<SHORT-TERM> 42,284
<LIABILITIES-OTHER> 6,445
<LONG-TERM> 0
<COMMON> 0
0
19,763
<OTHER-SE> 41,580
<TOTAL-LIABILITIES-AND-EQUITY> 675,328
<INTEREST-LOAN> 10,342
<INTEREST-INVEST> 2,234
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 12,579
<INTEREST-DEPOSIT> 4,689
<INTEREST-EXPENSE> 5,324
<INTEREST-INCOME-NET> 7,255
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,145
<INCOME-PRETAX> 2,510
<INCOME-PRE-EXTRAORDINARY> 2,510
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,885
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
<YIELD-ACTUAL> 5.00
<LOANS-NON> 1,867
<LOANS-PAST> 298
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 25,269
<ALLOWANCE-OPEN> 5,522
<CHARGE-OFFS> 518
<RECOVERIES> 369
<ALLOWANCE-CLOSE> 5,673
<ALLOWANCE-DOMESTIC> 5,060
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 613
</TABLE>
